Apple announced on Wednesday a complete overhaul of its line of iPod portable music players and a significant cut in the price of its recently released iPhone.

The iPod Touch, essentially a phoneless, camera-less version of the iPhone, has the same 3.5-inch screen, multitouch interface and home screen as the smart phone. The iPod Touch has the ability to connect to the Internet with 802.11b/g Wi-Fi. The Touch comes with Apple's Safari Web browser and has built-in Google and Yahoo search.

The new iPod comes in two configurations, an 8GB version that costs $299 and a 16GB model that costs $399. The battery in each can handle 22 hours of audio playback or 5 hours of video, according to CEO Steve Jobs. Both versions are expected to be available this month.

The device runs the same version of Apple's OS X found in the iPhone, said Greg Joswiak, vice president of iPod products for Apple. Also, as with the iPhone, developers will have to settle for building Web applications to run in Safari on the iPod Touch, as Apple doesn't plan to open the new device up to application developers just yet.

The iPod Touch may pull some customers away from purchasing the iPhone--in that it's cheaper and doesn't require a two-year contract with AT&T--at the cost of being unable to make voice calls, of course. But Apple isn't that worried. "It's better than having to go to a competitor," Joswiak said.

Apple is also revising some of its previous iPods, including the regular iPod, the Nano and the Shuffle. Apple will offer a 160GB version of the regular iPod (now known as the iPod Classic), which is enough storage for 40,000 songs, according to Jobs. It is thinner than the regular iPod and has better battery life, enough to handle 40 hours of audio. That model will go for $349, and an 80GB version will now be $249, a price drop of $100. Those iPods will be available this weekend.

The iPod Nano will now have video capability, though its screen is only 2 inches wide. It comes loaded with new games and Apple's Cover Flow software, which lets users scroll through album covers when searching for music. The Nano will come in two configurations, a 4GB version priced at $149, and an 8GB version that will cost $199. The Nanos will come in the same new colors as the Shuffle and are expected to be available in stores this weekend, according to Jobs.

The Nano overhaul is in line with previous rumors of a shorter, squatter iPod. The new Nano, from a volume perspective, is identical to the old one, but it's shorter and wider. That's to accommodate the 2-inch screen, which has a 320x240 pixel resolution.

Initial reaction to the new Nano, which has been the most popular version among previous iPods, was mixed. Readers posting on CNET News.com griped about the new colors and expressed skepticism about watching videos on the 2-inch screen.

One poster on AppleInsider's forums opined, "I like it, but it kind of reminds me of a cracker. I feel like adding some cheese and taking a nibble."

However, it's not likely that many people will buy the iPod Nano with movies or TV shows in mind, when they now have two other options with larger screens and larger capacity.

At S.F. Apple event, CEO Steve Jobs introduces an iPod with almost all the same features of an iPhone, but without the phone.

Apple CEO introduces an overhaul of the iPod lineup (and pricing) for the holiday season. The iPhone gets a big price chop too.

Roger Kay, president of Endpoint Technologies, said the rapid price cut is probably the result of slower-than-anticipated demand.

"It is a very interesting sign. My first suspicion is that they aren't getting the volume," he said.

But AT&T, the iPhone's exclusive wireless service provider, dismissed concerns about iPhone sales.

"We are very pleased with how customers have responded to the iPhone," said Mark Siegel, a spokesman for AT&T. "And the new pricing by Apple will do nothing but make the device more popular. So we view this news very positively."

And Jobs reiterated Apple's statements that it plans to have sold 1 million iPhones by the end of the current quarter in September. Before the price cut announcement, Piper Jaffray also echoed its previous estimates that Apple would hit that mark. Still, the financial analyst community hasn't had the best track record predicting iPhone sales so far.

On the software side of things, Apple announced a new version of its iTunes media player, which is scheduled to be released Wednesday night. A new feature in the updated iTunes allows users to create ringtones from any segment of a song they've downloaded through the iTunes Store. That service costs 99 cents per ringtone, and does not include the price of the song. The ringtones will be compatible only with the iPhone.

Apple also announced the iTunes Wi-Fi Music Store, which allows consumers to buy songs wirelessly. Users can preview, download and listen to songs right away on their iPod Touch or iPhone (after a software update expected later this month). Upon syncing the device with a computer, those songs will be transferred into the user's iTunes library.

Apple fans have been clamoring for this capability ever since the iPhone was introduced, but the company wanted to make sure to get it right the first time before plunging in, said Eddy Cue, vice president of iTunes at Apple. "We didn't want to have a crippled store," he said, meaning a store that didn't have the same inventory as the regular iTunes Store or that didn't provide the same shopping experience.

The wireless store is just confined to music at the moment, however; people won't be able to purchase TV shows or movies through the Wi-Fi store, Cue confirmed. He declined to specify when that might become available.

Along with the Wi-Fi Music Store, Jobs announced a partnership with Starbucks. People with an iPod Touch or iPhone who walk into a Starbucks coffee shop will see a button pop up on their screen. They will then have the option to buy the last 10 songs that have been playing in the store, as well as music from featured artists at Starbucks.

Apple's stock did not react well to Wednesday's news, tumbling 5.13 percent, or $7.40, to close at $136.76. The stock has been extremely volatile this year, and it tends to follow a "buy on the rumor, sell on the news," progression.

But the movement could also be related to concerns that Apple's margins could be in for a hit with the steep discount applied to the iPhone. The company guided more conservatively on earnings per share for the current quarter when it announced third-quarter earnings in July, perhaps well aware that steep price cuts were in the offing for the iPhone. That is, unless it needed to stimulate demand more than previously thought.

About the author

Jennifer Guevin is managing editor at CNET, overseeing the ever-helpful How To section, special packages, and front-page programming. As a writer, she gravitates toward science, quirky geek culture stories, robots, and food. In real life, she mostly just gravitates toward food.
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